The Supreme Court of Justice of the City of Buenos Aires Rendered Ineffective a Fine Imposed to an Insurer by a Local Consumer Protection Agency for Using an Exclusion Which Had Been Considered Valid by National Authorities

Precedents

On May 24, 2001, Zurich International Life Limited Sucursal Argentina (“ZILLSA”) refused to pay a death benefit under a life policy, because the death was a consequence of an accident on a non-regular flight, which was a risk excluded by a special policy condition.

An assignee of the beneficiary’s rights under the policy filed: i) court proceedings with the commercial courts, demanding the nullification of the policy exclusion; and simultaneously ii) a claim with the consumer protection agency of the City of Buenos Aires (the “Agency”) for the alleged breach by the insurer of its duties under Article 37 Section b) and Article 19 of the Consumers Protection Law (“CPL”).

Proceedings with the Commercial Courts

On September 19, 2008, the Commercial Court of Appeals rejected the claim on the basis that the exclusion was not abusive, groundless or unreasonable; it was a clear and precise limitation to the covered risk. The plaintiff failed on the appeal with the Argentine Supreme Court of Justice, and the Court of Appeal’s decision became final.

The Claim with the Agency

In November 2006, the Agency decided to impose a fine to the insurer for the alleged breach of Article 37 Section b) and Article 19 of the CPL. Regarding Article 37 Section b), the Agency considered that the exclusion of coverage was abusive for it widened the rights of the insurer. As regards Article 19, the Agency understood that the insurer had not complied with the terms and conditions of the clause introduced by the insurer.

The Decision by the Supreme Court of Justice of the City of Buenos Aires

After some appeals, the case of the fine imposed by the Agency arrived at the Supreme Court of Justice of the City of Buenos Aires (the “Court”). On March 16, 2011, Marval O’ Farrell & Mairal obtained a favorable decision from the Court and therefore rendered ineffective the fine imposed to the insurer by the Agency.

The Court understood that, in principle, the matters discussed in the proceedings with the commercial courts and the claim with the Agency were different. In the court proceedings the matter under discussion was the validity, interpretation and enforcement of the exclusion, while in the claim with the Agency it was necessary to analyze if the clause was abusive in the light of the CPL and if the insurer had properly rendered its services.

Nevertheless, the Court admitted that both matters were not entirely independent. Due to this lack of independence, there could not be contradicting interpretations, whereby an entity would impose a fine for what another considered valid (in the case under analysis, despite the rejection of the lawsuit in the commercial courts, the fine imposed by the Agency was still in force).

The Court took special note of the fact that what was under discussion was an insurance agreement approved by a national authority –the Argentine Superintendence of Insurance– whose powers would be curtailed if a local entity (such as a consumer protection agency) prohibited the selling in its local jurisdiction of terms and conditions that had been considered valid by the national authority. The Court understood that the ruling by the Agency would result in the division of the country in different jurisdictions and that risks covered in one would differ from those covered in other jurisdictions, depending on the opinions of the relevant consumer protection agencies (which are not specialized in insurance matters), and regardless of the criteria of the Argentine Superintendence of Insurance (a specialized entity).

Moreover, the Court understood that the decision which had been appealed was groundless. It was not proven in the file that the exclusion actually limited the consumer’s rights.

Regarding the alleged breach by the insurer of Article 19 of CPL, the Court held that the fine was not reasonable and that it did not derive from the facts of the case. In other words, it had not been proven that the service provided by the insurer had failed to comply with the terms and conditions offered or agreed.

The decision of the Court is relevant inasmuch as it recognizes the authority and specialized skills of the Argentine Superintendence of Insurance to analyze the validity of a clause of an insurance contract, as opposed to decisions by local consumer protection agencies. It also establishes that risks should be covered in a uniform way within the whole of the country, and that policy conditions many not be parceled up depending on the diverging interpretations by local consumers protection agencies.